Business Context and Reporting Period
Company: Dynagas LNG Partners LP (NasdaqGS: DLNG)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three months ended March 31, 2014 (First Quarter 2014)
Business Overview: Dynagas is a growth-oriented partnership owning and operating LNG carriers on multi-year time charters. As of the reporting date, the fleet consisted of three LNG carriers, all operating at 100% utilization.
Key Financial Metrics
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Net Income | $11.0 million | $11.2 million |
| Operating Income | $12.8 million | $13.5 million |
| Adjusted EBITDA (Non-GAAP) | $16.3 million | $16.9 million |
| Distributable Cash Flow (Non-GAAP) | $12.3 million | $11.0 million |
| Earnings Per Unit (Basic & Diluted) | $0.37 | $0.52 |
| Net Cash from Operating Activities | $14.5 million | $6.8 million |
| Total Indebtedness (as of March 31, 2014) | $214.1 million | N/A |
| Total Available Liquidity (as of March 31, 2014) | $103.8 million | N/A |
Note: Adjusted EBITDA and Distributable Cash Flow are non-GAAP measures. See Appendix B in the source filing for reconciliations.
Material Changes vs. Prior Period
- Revenue Stability: Voyage revenues remained relatively flat at $21.0 million in Q1 2014 compared to $21.2 million in Q1 2013. The average daily hire rate per vessel was approximately $77,700, consistent with the prior year.
- Expense Variance: General and administrative expenses increased by approximately $0.6 million due to costs associated with being a public company since November 2013. This was partially offset by a $0.4 million decrease in interest and finance costs resulting from lower weighted outstanding indebtedness.
- Operating Efficiency: Total operating expenses decreased slightly to $3.1 million ($11,570 per vessel per day) from $3.2 million ($11,863 per vessel per day) in the prior year. No special survey or dry-dock repairs were incurred in either period.
- EPS Decline: Earnings per unit decreased from $0.52 to $0.37. This decline is primarily attributed to the restatement of unit counts following the October 2013 IPO issuance, rather than a drop in total net income.
Guidance, Outlook, and Recent Developments
Recent Developments
- Arctic Aurora Acquisition: Entered into an agreement to acquire the Arctic Aurora (a 155,000 cbm ice-class LNG carrier) for $235 million. The vessel is currently chartered to Statoil ASA through July 2018. The acquisition is expected to generate annual gross revenues of approximately $28.3 million and annual net cash from operations of $21.7 million.
- Financing: Secured a commitment for a new $340 million Senior Secured Revolving Credit Facility to partially finance the Arctic Aurora acquisition and refinance existing debt.
- Charter Extension: Signed a new 13-year time charter with Gazprom for the Clean Force, increasing the Partnership's average contract duration from approximately three years to seven years.
Outlook and Guidance
- Distribution Increase: Management intends to recommend an increase in the quarterly cash distribution per unit of between $0.0225 and $0.0275, effective for the quarter ending June 30, 2014, following the Arctic Aurora acquisition.
- Contract Backlog: As of May 14, 2014, the contracted revenue backlog was approximately $535.0 million with an average remaining contract duration of 6.8 years. The fleet is 100% contracted through 2016 and 67% through 2017.
Risks and Contingencies
- Acquisition Conditions: The Arctic Aurora acquisition is subject to obtaining necessary funds and satisfying closing conditions.
- Market Risks: Forward-looking statements are subject to risks including fluctuations in charter rates, vessel values, bunker prices, and global economic conditions.
Investor Verification Checklist
- Acquisition Closing: Verify the successful closing of the $235 million Arctic Aurora acquisition and the associated financing.
- Debt Refinancing: Confirm the execution of the new $340 million Senior Secured Revolving Credit Facility and the refinancing of the existing $214.1 million debt.
- Distribution Approval: Monitor the Board's formal approval of the proposed increase in quarterly cash distributions.
- Charter Terms: Review the specific terms of the new 13-year Gazprom charter for the Clean Force and the amendment of the BG Group contract.
- Unit Count Impact: Understand the impact of the October 2013 IPO unit issuance on year-over-year per-unit metrics.